Identified after a decline – a Japanese candlestick type representing price that moved significantly lower, but rebounds to close well below the low
The hammer has a small body and long tail to the downside. It is identified as the market declines because it can suggest bottoming sentiment. The long tail pushing the action back towards the open or above it suggests rejection of the downside. This should not be taken stand alone signal to trade off of as a reversal signal. If the market is trending sharply, this would reflect simply a pause in the trend.
Example: The hammer can be either a bearish or bullish candle.
After an advance, it is known as a hanging man, and can suggest topping sentiment.